Minister for Finance statement on Tax Policy measures to reduce the cost of electricity

The Minister states:

The Government are conscious of the implications of energy costs for all sectors of society.

Electricity and gas retail markets in Ireland operate within a European regulatory regime wherein these markets are commercial, liberalised, and competitive and are overseen by the Commission for the Regulation of Utilities (CRU). Price setting by energy suppliers is a commercial and operational matter for the companies concerned.

As regards taxation, households are currently exempt from Electricity Tax, while businesses pay €1 per unit or megawatt hour for business use and non-business use. In addition to the relief for electricity for household use, there is also relief from taxation for electricity generated from renewable sources. In most cases this is claimed at source by the supplier. This is intended to accelerate the decarbonisation of our grid and bring down the price of electricity for the consumer.

Recently, Government approved an extension of the 9% VAT rate currently applied to gas and electricity until 31 October 2025. The estimated cost of this measure is €85 million.

In my view, the most effective way to reduce the cost of electricity over the longer term is to discourage the use of fossil fuels, whilst at the same time spurring innovation and increasing the uptake of cleaner sources of energy. In this regard, the Carbon Tax, as an environmental tax on fossil fuels based on the polluter pays principle, further supports achievement of this objective.

The carbon tax rate trajectory provides a clear long-term signal to industry and society alike that our future involves a move away from fossil fuels. By maintaining the trajectory of annual carbon tax rate increases, our commitment to transitioning to a carbon neutral economy is reinforced.

In conclusion, while taxation does affect the final retail price of electricity and fuel, the best way of insulating our economy and society from energy prices shocks is to reduce our dependence on fossil fuels.